M/s. Pravin Ratilal Share and Stock Brokers Ltd., Ahmedabad V. The Dy.CIT.,Cent.Circle-2(2), Ahmedabad

ITA 1527/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0244 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 14-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Keywords: Business income; Depreciation; Search and seizure; Opportunity of being heard; Bad and doubtful debts; Difference of opinion; Change of opinion; Set aside
• Section: 143(3); 153A; 143(1); 143(2); 264; 37; 263; 132; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 17/09/2009 DRAFTED ON: 15/1 0/2009 ITA NO.1527/AHD/2009 ASSESSMENT YEAR : 2001-02 M/S.PRAVIN RATILAL SHARE AND STOCK BROKERS LTD. 5 TH FLOOR, SAKAR NR. GANDHIGRAM RLY.STATION AHMEDABAD VS. THE DY.CIT CENTRAL CIRCLE-2(2) AHMEDABAD PAN/GIR NO. : AAACP 9 124 H (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI DEEPAK SONI, CA RESPONDENT BY: SHRI RAJEEV AGARWAL, DR O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED CIT(CENTRAL)-II, AHMEDABAD PASSED U/S.263 O F THE I.T. ACT, 1961 DATED 30/03/2009 FOR ASSESSMENT YEAR 2001-02 . THE CIT IN THIS ORDER HAS DIRECTED THE ASSESSING OFFICER TO DISALLO W THE BAD DEBTS OF RS.9,64,676/- AS CONDITIONS LAID DOWN U/S.36(2) OF THE I.T. ACT, 1961 ARE NOT FULFILLED BUT ASSESSING OFFICER MAY CONSIDER TH E ALTERNATIVE CLAIM OF THE ASSESSEE THAT THIS AMOUNT IS A TRADING LOSS AND FOR THIS PURPOSE MAY CARRY OUT NECESSARY ENQUIRIES. ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 2 - 2. THE GROUND RAISED BY THE ASSESSEE ARE ARGUMENTAT IVE HENCE THEY ARE NOT REPEATED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING AND BROKERAGE OF SHARES AND SECURITIES. THE RETURN OF INCOME FOR ASSESSMENT YEAR 2001-02 WA S FILED BY THE ASSESSEE ON 25/10/2001 ON AN INCOME OF RS.20,51,13 7/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER ASKED THE ASSESSEE TO EXPLAIN THE CLAIM OF DEPRECIATION ON AH MEDABAD STOCK EXCHANGE CARD (IN SHORT ASE CARD) AS WELL AS CLAIM OF BAD DEBTS. THE ASSESSMENT WAS COMPLETED BY DISALLOWING DEPRECIATIO N ON ASE CARD AND SOME OTHER DISALLOWANCES LIKE ON SOFTWARE EXPENSES AND UPS PURCHASES. THUS, THE TOTAL INCOME WAS ASSESSED AT RS.27,69,590 /-. THE BUSINESS INCOME SO COMPUTED WAS CHALLENGED BY THE ASSESSEE B EFORE LD.CIT(A). THUS, NO PROCEEDINGS REMAINED PENDING BEFORE THE AS SESSING OFFICER IN RESPECT OF ASSESSMENT YEAR 2001-02. THEREAFTER, CI T ISSUED A SHOW- CAUSE NOTICE U/S.263 OF THE I.T. ACT, 1961 ON 21/02 /2006 ASKING THE ASSESSEE TO EXPLAIN AS TO WHY ITS CLAIM OF BAD DEBT OF RS.9,64,676/- BE NOT DISALLOWED. ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 3 - 4. A REPLY WAS FURNISHED BY THE ASSESSEE ON 06/03/2 006, WHEREIN CLAIM OF BAD DEBT U/S.36(1)(VII) R.W.S. 36( 2) OF THE I.T. ACT, 1961 OR IN THE ALTERNATIVE OF TRADING LOSS UNDER SECTIONS 28 AND 37 OF THE I.T. ACT, 1961 WAS JUSTIFIED. IT SEEMS THA T THERE WAS NO ACTION THEREAFTER BY THE COMMISSIONER. IN THE MEA NTIME, A SEARCH U/S.132 OF THE I.T. ACT, 1961 TOOK PLACE AT THE BUS INESS AND RESIDENTIAL PREMISES OF THE ASSESSEE GROUP ON 22/09 /2005 AND, ACCORDINGLY, NOTICE U/S.153A OF THE I.T. ACT, 1961 WAS ISSUED TO THE ASSESSEE ON 09/03/2006 AND SERVED ON HIM ON SAME D ATE REQUIRING THE ASSESSEE TO FILE THE RETURN OF INCOME. IN RES PONSE TO THIS NOTICE, ASSESSEE FILED RETURN ON 04/07/2006 DECLARING INCOM E OF RS.20,51,140/- BEING INCOME ORIGINALLY DECLARED VID E ITS RETURN FILED ON 25/02/2001. THEREAFTER, THE ASSESSING OFFICER CARRIED OUT ENQUIRIES BY ISSUING NOTICE U/S.143(2) / 143(1) OF THE I.T. ACT, 1961 AND COMPLETED THE ASSESSMENT ON 28/12/2007 BY MAKIN G ADDITION IN RESPECT OF DEPRECIATION ON ASE CARD DISALLOWED AND IN RESPECT OF CERTAIN DEPOSITS IN THE BANK ACCOUNT AMOUNTING TO R S.1,45,000/-. THUS, THE TOTAL INCOME WAS ASSESSED AT RS.28,54,27 7/- IN THE ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 4 - ASSESSMENT ORDER PASSED ON 28/12/2007 U/S.153A OF T HE I.T. ACT, 1961. 5. IT IS IN RESPECT OF THIS ORDER, THE CIT HAS AGAI N ISSUED NOTICE U/S.263 OF THE I.T. ACT, 1961 ON 17/03/2009 ASKING THE ASSESSEE TO EXPLAIN WHY NOT THE DISALLOWANCE BE MADE IN RESPEC T OF BAD DEBTS OF RS.9,64,676/-. THE ASSESSEE SENT A DETAILED REP LY ON 19/03/2009 AND FINALLY CIT PASSED IMPUGNED ORDER ON 30/03/2009 AGAINST WHICH ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED FOLLOWING ARGUMENTS IN SUPPORT OF HIS CON TENTION THAT ORDER PASSED BY THE CIT IS BAD IN LAW AND IS NOT SU STAINABLE. HIS SUBMISSIONS ARE AS UNDER:- (I) ISSUE OF BAD DEBT WAS EXAMINED BY THE ASSESSI NG OFFICER IN GREAT DETAIL IN THE ORIGINAL ASSESSMENT PROCEEDINGS, WHICH WERE COMPLETED BY PASSING THE ASSESSMENT ORDER ON 18/03/2004. THE REFERENCE WAS ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 5 - MADE TO ASSESSING OFFICERS LETTER/NOTICE DATED 23/02/2004 AND 01/03/2004 AND ASSESSEES REPLIES DA TED 05/02/2004, 02/03/2004 AND 08/03/2004. THEREAFTER, CIT HAD EXAMINED THE ISSUE BY ISSUING A NOTICE DATE D 21/02/2006 AND THE ASSESSEE HAS FURNISHED HIS REPLI ES IN GREAT DETAIL VIDE HIS LETTER DATED 06/03/2006. (II) THE ISSUE HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AND CIT AND NO ADDITION WAS MADE BY THE ASSESSING OFFICER AND THE LD.CIT ALSO DID NOT CARRY THE MATT ER FURTHER IN THE PROCEEDINGS INITIATED U/S.263 ON THE SAME ISSUE. THUS, THE IMPUGNED NOTICE U/S.263 OF THE I. T. ACT, 1961 ON THE SAME ISSUE TANTAMOUNTS TO CHANGE OF OPINION. (III) EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S.153A OF THE I.T. ACT, 1961, THE ASSESSING OFFIC ER HAD EXAMINED THE ISSUE OF BAD DEBT IN GREAT DETAIL AND HAD APPARENTLY NOT MADE THE ADDITION. HE WAS SATIS FIED WITH THE PROCEEDINGS ALREADY UNDERTAKEN BY THE PREV IOUS ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 6 - ASSESSING OFFICER AND HAD CONSIDERED THE NOTICE ISS UED IN EARLIER PROCEEDINGS AND REPLIES SUBMITTED BY THE ASSESSEE ON THIS ISSUE. THEREFORE, THERE IS NO CAS E WHERE IT COULD BE SAID THAT ASSESSING OFFICER HAS NOT CAR RIED OUT ANY ENQUIRY. (IV) NOTWITHSTANDING, IT IS INCORRECT TO SAY THAT PROVIS IONS OF SECTION 36(2) ARE NOT APPLICABLE. THE ASSESSEE IS A SHARE-BROKER. THE SHARE-BROKERAGE IS DECLARED IN T HE RETURN OF INCOME AS ASSESSEES INCOME. THE PURCHAS ES MADE BY THE CLIENTS FROM THE ASSESSEE RESULTS INTO TWO ITEMS; ONE IS THE BROKERAGE AND OTHER IS THE PAYMEN T FOR PURCHASES MADE BY THE CLIENTS. THE BROKERAGE IS CREDITED INTO PROFIT & LOSS ACCOUNT AND PAYMENTS FO R PURCHASE ARE ENTERED INTO CLIENTS ACCOUNTS. THUS PART OF THE RECEIPTS ARE ACCOUNTED FOR IN THE TRADING-CU M- PROFIT & LOSS ACCOUNT. FURTHER, IN ANY CASE, IT IS A TRADING LOSS ALLOWABLE UNDER SECTIONS 28/37 OF THE I.T. ACT, 1961. THIS ISSUE WAS ALSO EXAMINED IN DETAIL BY THE ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 7 - ASSESSING OFFICER DURING THE COURSE OF EARLIER PROCEEDINGS. (V) THE ASSESSMENT PROCEEDINGS CULMINATED INTO O RDER DATED 18/03/2004 COULD NOT BE SAID TO BE ABATED AS THEY WERE CLOSED WHEN THE SEARCH BOOK PLACED ON 22/03/2005. THEREFORE, COMPLETED ISSUES COULD NOT BE AGITATED BY THE ASSESSING OFFICER UNLESS SOME MATER IAL IS FOUND IN THE SEARCH. IT IS ONLY IN THOSE PROCEE DINGS WHICH WERE PENDING ON THE DATE OF SEARCH WOULD ABAT E AND ALL THE ISSUES RAISED BY THE ASSESSING OFFICER IN THE ORIGINAL PROCEEDINGS COULD BE CONTINUED TO BE RAISE D IN THE PROCEEDINGS U/S.153A OF THE I.T. ACT, 1961. TH E ISSUE REGARDING BAD DEBT/TRADE LOSS IS CLOSED AND, THEREFORE, THERE IS NO OPTION TO THE ASSESSING OFFI CER TO AGITATE THAT ISSUE AGAIN. WHAT ASSESSING OFFICER CANNOT DO CANNOT BE DIRECTED BY THE CIT TO DO. ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 8 - (VI) THE ORDER PASSED BY THE ASSESSING OFFICER ON 28/12/2007 U/S.153-A IS BARRED BY LIMITATION IN AS MUCH AS NOTICE U/S.143(2) WAS ISSUED AFTER 12 MONTHS FRO M THE DATE OF FILING OF THE RETURN AND, THEREFORE, ASSESS MENT PROCEEDINGS U/S.153A ARE NULL AND VOID AND NO FURTH ER ADDITION IN THE RETURNED INCOME COULD BE MADE. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE FOLLOWING JUDGEMENTS:- SL.NO(S) DECISION IN THE CASE OF UNREPORTED/REPORTED IN 1. PARKAR SECURITIES LTD. VS. ITO ITA NO.752/AHD/2004 ASSESSMENT YEAR 2000-01 2. CANON CAPITAL & FINANCE LTD. VS. AICT ITA NO.1119/AHD/2005 3. KOTAK SECURITIES LTD. ADDL.CIT IT APPEAL NO.1995 (MUM.) OF 2008 7. AGAINST THIS, THE LEARNED DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT ORIGINAL PROCEEDINGS BY WAY OF ASSES SMENT ORDER DATED 18/03/2004 DID NOT SURVIVE AND, ACCORDINGLY, NO PROCEEDINGS CONCERNING THAT ASSESSMENT ORDER WOULD SURVIVE AN D WHAT WOULD ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 9 - SURVIVE IS ONLY FRESH ASSESSMENT PROCEEDINGS U/S.15 3A OF THE I.T. ACT, 1961. THEREFORE, WHERE THE ASSESSING OFFICER DOES NOT TOUCH THE ISSUE OF BAD DEBT, THE LD.CIT IS FULLY EMPOWE RED TO SET ASIDE THE ASSESSMENT ORDER U/S.263 OF THE I.T. ACT, 1961. T HE ISSUE REGARDING TRADING LOSS WAS NOT EXAMINED BY THE ASSESSING OFFI CER AT ALL AND THE CIT HAS ONLY ASKED THE ASSESSING OFFICER TO CON SIDER THE CLAIM WHICH MEANS THAT IF, IT IS PERMISSIBLE UNDER THE LA W, IT COULD BE ALLOWED TO THE ASSESSEE. THIS WILL NOT CAUSE ANY P REJUDICE TO THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS SHARE-BROKER AND HAS BEEN MAKING PURCHASES ON BEHALF OF THE CLIENTS AND SHOWING BROKERAGE INCOME. DURING THE ASSESSMENT YEAR, THE ASSESSEE COULD NOT RECOVER A SUM OF RS.9,64,676/- FROM ITS CLIENTS AND, ACCORDINGLY, IT CLAIMED IT AS A BAD DEBT. THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS, RELATING TO THE RETURN FILE D ON 25/10/2001 ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 10 - ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE ON 23/02 /2004 ASKING THE ASSESSEE TO EXPLAIN AS TO HOW HIS CLAIM OF BAD DEBT IS COVERED U/S.36(2) OF THE I.T. ACT, 1961 AS THE ASSESSEE IS A SHARE-BROKER AND SUCH DEBT HAS NOT BEEN TAKEN INTO ACCOUNT IN COMPUT ING THE INCOME OF THE PREVIOUS YEAR. THE ASSESSEE WAS ASKED TO SU BMIT THE EXPLANATION WITHIN 7 DAYS. IN RESPONSE TO THIS, T HE ASSESSEE FURNISHED REPLY ON02/03/2004, WHEREIN FOLLOWING POI NTS WERE RAISED:- (I) ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF ACTING AS A BROKER IN PURCHASING THE SHARE AND INCOME DERI VED BY THE COMPANY IS BY WAY OF SAID TRANSACTIONS. (II) ASSESSEE-COMPANY PRODUCED THE PARTIES BEFORE THE TW O AUTHORITIES AND BROKERAGE WAS CHARGED FROM THEM, WHICH WAS DECLARED AS INCOME OF THE ASSESSEE. (III) AMOUNT WAS WRITTEN OFF IS A TRADING LOSS WHICH SHOU LD BE DEDUCTIBLE IN COMPUTING TOTAL INCOME. (IV) THE PROFIT SHOULD BE COMPUTED AFTER TAKING THE LOSS AND EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. (V) THERE IS A DIRECT PROSECUTE NOTE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS AND, THEREFORE, LOS S IS DEDUCTIBLE. IT IS INCIDENTAL TO THE BUSINESS FRO M IT PROFITS ARE DECLARED. THUS, LOSS OF RS.9,64,676/- IS DEDUCTIBLE AS A TRADING LOSS U/S.28 OF THE I.T. ACT , 1961. HE REFERRED TO THE DECISION OF HON'BLE SUPREME COUR T IN ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 11 - THE CASE OF R.SHIVNARAYAN VS. CIT 111 ITR 263(SC) , OF SULTEJ COTTON MILL LTD. VS. CIT 116 ITR 01 (SC) AND OF TRAVANCORE TEA ESTATES CO.LTD. VS. CIT 197 ITR 528(SC). (VI) THE ASSESSEE ALSO RELIED ON THE DECISION IN THE CA SE OF CIT VS. INDIAN BISELERS 181 ITR 69, WHEREIN IT WAS HELD THAT IF AN EXPENDITURE IS NOT ADMISSIBLE AS A BAD D EBT, THEN IT CAN BE ALLOWED AS A TRADING LOSS AS IT IS A RISEN DIRECTLY FROM CARRYING ON THE BUSINESS. 9. THEREAFTER, THE ASSESSING OFFICER FURTHER ISSUED A LETTER DATED 01/03/2004 ON THIS ISSUE, IN RESPONSE TO WHICH THE ASSESSEE FURNISHED REPLY DATED 08/03/2004. THE GIST OF REP LY IS AS UNDER:- (I) THE CLAIM OF TRADING LOSS IS MADE WITHOUT PREJU DICE TO THE CLAIM OF BAD DEBT U/S.36 OF THE I.T. ACT, 1961. (II) THE ASSESSEE-COMPANY IS CARRYING OUT ACTIVITIES OF SALE AND PURCHASE OF SHARES IN RESPECT OF MORE THAN 2500 CLIENTS. THE BAD DEBTS HAD ARISEN ON ACCOUNT OF TRANSACTIONS IN THE NAME OF SHRI HARENDRA BADIANI A ND SMT. SARLA H.BADIANI. THE BAD DEBTS HAD ARISEN AS A PART OF EARNING BUSINESS OPERATION AND IS NOT ONLY TO THE BUSINESS CARRIED ON BY THE ASSESSEE INCIDENTAL. (III) THE BALANCE-SHEET IS PREPARED AS PER SCHEDULE VI A S PER THE COMPANIES ACT, 1956. WHEN SHARES ARE PURCHASE D ON BEHALF OF AND ON THE INSTRUCTION OF THE CLIENT, ACCOUNT OF THE PARTY IS DEBITED. WHEN AMOUNT OF THE PARTY IS REALIZED, HIS ACCOUNT IS CREDITED. WHEN PARTY SUFF ERS A LOSS, HIS ACCOUNT IS DEBITED. WHEN A PARTY EARNS P ROFIT, HIS ACCOUNT IS CREDITED. THE FINAL BALANCES ARE R EFLECTED ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 12 - AS SUNDRY DEBTOR AND SUNDRY CREDITOR AT THE END OF THE YEAR. THE TRANSACTIONS CARRIED OUT WITH BADIANI W ERE NOT AFFECTED IN ANY RELATIONSHIP BUT AS AN ORDINARY CUSTOMER. THE NAMES, COMPLETE ADDRESSES, PANS AND ALL THE DETAILS OF THE TWO PARTIES HAVE BEEN FURNIS HED. A REQUEST IS MADE TO ISSUE SUMMONS TO THE TWO PARTIES NOR OBTAINED FURTHER DETAILS. THE COMPANY HAS NO CONTR OL OVER FILING OF THE RETURNS BY THE CLIENTS OR MAINTE NANCE OF BOOKS OF ACCOUNT BY THEM. (IV) BOTH THE PARTIES ARE EXPIRED IN THE EARTH-QUAKE OCC URRED ON 26 TH JANUARY-2001 AND, HENCE, IT IS NOT POSSIBLE TO RECOVER THE DEBIT BALANCE FROM THEM. THUS, THE AMO UNT BECAME IRRECOVERABLE. 10. SEVERAL DOCUMENTARY EVIDENCE IN CONNECTION WITH THE TRANSACTIONS AND EVIDENCE IN CONNECTION WITH THE DE BTS OF BOTH THE PARTIES WERE PLACED ON THE RECORD. THE DEATH CERTI FICATES IN RESPECT OF THE PARTIES AS PER ITEM (VI) ABOVE HAVE ALREADY BEEN PLACED ON RECORD OF THE DEPARTMENT. THUS, ASSESSEE DISCHARGE D THE ONUS. VIDE ASSESSING OFFICERS LETTER DATED 01/03/2004, F OLLOWING QUERIES WERE FURTHER RAISED:- NO.AHD/CIR-3/BAD DEBTS/03-04 OFFICE OF THE ASSTT. COMMISSIONER OF INCOME-TAX AHMEDABAD CIRCLE, 3, 5 TH FLOOR INSURANCE BUILDING, ASHRAM ROAD AHMEDABAD, PH.NO.7544516 DATE : 01-03-2004 TO ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 13 - PRAVIN RATILAL SHARE & STOCK BROKERS LTD. SAKAR-I, 5 TH FLOOR, OPP.GANDHIGRAM RLY.STATION NAVRANGPURA, AHMEDABAD SIR, SUB : ASSESSMENT PROCEEDINGS FOR A.Y. 2001-02 REF: YOUR CLAIM FOR DEDUCTION REGARDING BAD DEBTS SHOW CAUSE FOR YOUR PLEA FOR ALLOWANCE U/S.28(1)/37(1) O F I.T. ACT. 1. TO CONSIDER YOUR ALTERNATIVE PLEA FOR CLAIM OF DEDU CTION CLAIMED BY YOU IF IT HAS TO BE ALLOWED U/S.28(I) AN D / OR SEC.37(1) YOU SHOULD FIRST SATISFY ALL THE REQUIREMENTS/CONDITIONS FOR CLAIMING DEDUCTION UNDE R THE AFORESAID PROVISIONS OF LAW. THEREFORE, YOU ARE RE QUIRED TO SUBMIT YOUR EXPLANATION / DETAILS WITH REGARDS TO T HE FOLLOWING: A) IT IS FOR YOU TO ESTABLISH THAT THE SAID AMOUNT CLA IMED AS BAD DEBT(S) HAS ARISEN STRICTLY OUT OF NORMAL PR UDENT BUSINESS PRACTICES AND SO IS INCIDENTAL TO THE NORM AL COURSE OF BUSINESS. B) YOU ARE REQUIRED TO EXPLAIN THE METHOD/MANNER OF TREATMENT GIVEN BY YOU AS WELL AS THE OTHER PARTY I N RESPECT OF THE AMOUNT OUTSTANDING AGAINST THEM (PAR TY) AT THE END OF EVERY YEAR RIGHT FROM THE BEGINNING O F YOUR BUSINESS RELATION WITH THE SAID PARTY WHOSE ACCOUNT IS BEING CLAIMED AS BAD DEBT, WITH A VIEW T O ASCERTAIN THE NATURE, CHARACTER AND MANNER OF TRANSACTIONS. C) YOU ARE REQUIRED TO FURNISH PROOF OF FILING OF RETU RN ALONG WITH PAN BY THE SAID PARTY/PARTIES. YOU ARE ALSO REQUIRED TO EXPLAIN/STATE WITH PROOF IF THE SAID AM OUNT HAS BEEN CREDITED BY THE OTHER PARTY BY WAY OF REMISSION/CESSATION OF THE TRADE LIABILITY (CREDI T BALANCE N THE ACCOUNT OF THE ASSESSEE AS APPEARING IN ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 14 - THEIR BOOKS), OR THE SAME IS STILL BEING SHOWN AS OUTSTANDING IN THEIR BOOKS. D) WITH REFERENCE TO ALLOWABILITY U/S.28(I)/37(1), TH E ONUS LIES ON YOU TO PROVE THAT THE AMOUNT HAD BECOME NON - RECOVERABLE AND IS NOT LIKELY TO BE RECOVERED IN FU TURE. IN OTHER WORDS, THE ONUS IS ENTIRELY ON YOU TO ESTA BLISH THAT THE SAID DEBT/S HAS BECOME BAD AND TAKEN A CHARACTER OF TRADE LOSS/BUSINESS LOSS. E) IT IS FOR YOU TO PROVE THAT THE AMOUNT HAD BECOME IRRECOVERABLE IN THE YEAR UNDER CONSIDERATION I.E. DURING THE F.Y. 2000-01 OR IN OTHER WORDS YOU HAVE TO PRODUCE THE NECESSARY EVIDENCE AS IN A PRUDENT BUSINESS TO GIVE SUFFICIENT EVIDENCE TO ESTABLISH THAT OUTSTANDING AMOUNT HAD BECOME IRRECOVERABLE. F) YOU MAY ALSO PRODUCE ANY OTHER RELEVANT EVIDENCE, CERTIFICATES CORRESPONDENT (IF NOT FILED ALREADY0 EXCHANGE BETWEEN THE SAID PARTIES AND YOU, SO AS TO ESTABLISH THE REALITY OF THE LOSS. 2. YOU ARE HEREBY INFORMED THAT THE ONUS OF ESTABLISHI NG THE FACTUM OF THE ACTUAL LOSS AND IT BEING INCIDENTAL T O THE NORMAL BUSINESS PRACTICE (THE TYPE OF BUSINESS CARRIED BY YOU) LIES SQUARELY UPON YOU SO AS TO ENTITLE YOU FOR THE ABOV E DISCUSSED TREATMENT OF BAD DEBTS AS TRADE LOSS O BUSINESS L OSS. YOU ARE ALSO INFORMED THAT THE FAILURE ON THIS COUNT WO ULD RENDER YOUR CLAIM AS INVALID CLAIM AND YOUR CASE WITH REFE RENCE TO THE ABOVE ISSUE WOULD BE DISPOSED OFF ACCORDINGLY. YOUR SUBMISSION IN THIS REGARD SHOULD REACH THE OFF ICE OF THE UNDERSIGNED WITHIN 4 DAYS OF THE RECEIPT OF THIS LE TTER. PLEASE NOTE THAT THIS BEING A TIME BARRING MATTER, THE UND ERSIGNED WILL BE CONSTRAINED NOT TO ACCEPT ANY ADJOURNMENT IN THI S REGARD. SD/- (DR. SHYAM PRASAD K) ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-3, AHMEDABAD ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 15 - 11. IN THIS REGARD, WE REPRODUCE SOME PART OF THE L ETTER SENT BY THE ASSESSEE , WHICH ARE RELEVANT:- 2.0 THE COMPUTATION OF TOTAL INCOME, VARIOUS ASPE CTS OF THE BUSINESS ACTIVITIES CARRIED ON BY OUR COMPANY, THE DETAILS/INFORMATION, ETC. PLACED ON THE RECORDS OF YOUR GOODSELF WERE DISCUSSED AT A LENGTH AND THEREAFTER OUR REPRESENTATIVES WERE REQUIRED TO FURNISH CERTAIN DO CUMENTS IN CONNECTION WITH BAD DEBTS OF RS.9,64,676/- CLAIMED BY OUR COMPANY. 2.1. WE ARE FORWARDING HEREWITH THE FOLLOWING ON TH E BASIS OF THE DISCUSSION HELD WITH YOU: (A) COPIES OF THE DEATH CERTIFICATES IN CASE OF SH RI HARENDRA BADIANI AND SMT. SARALA H.BADIANI. (B) PHOTOSTAT COPIES OF THE DOCUMENTS PLACED BY THE M WITH OUR COMPANY ABOUT THEIR IDENTITIES, ADDRESS PROOF AND A LSO COPIES OF THE APPLICATIONS FOR OPENING DEMAT ACCOUNT GIVIN G THEREIN THE REQUIRED DETAILS. (C) PHOTOSTAT COPIES OF THE INVOICES PREPARED BY O UR COMPANY CREATING THE DEBIT BALANCES TO THEIR ACCOUNTS WHICH WERE WRITTEN OFF BY OUR COMPANY. 3.0. WE TRUST THE ABOVE STATED DETAILS/INFORMATION WILL MEET WITH THE REQUIREMENTS OF YOUR GOODSELF AND OUR CLAI M OF BAD DEBTS BEING IN ORDER WILL BE ALLOWED. IT IS NEEDLE SS TO STATE THAT OUR COMPANY SHALL BE PLEASED TO FURNISH ANY DETAILS/INFORMATION AS MAY BE REQUIRED BY YOUR GOOD SELF ON HEARING FORM YOU. ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 16 - 12. IT IS APPARENT THAT AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE ASSESSING OFFICER DID NOT PROPOSE ANY ADDITION IN RESPECT OF THE SUM OF RS.9,64,677/-. 13. THE LD.CIT VIDE HIS NOTICE DATED 21/02/2006 CON SIDERED THAT THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF BAD DEBT ERRONEOUSLY. HE ISSUED A SHOW-CAUSE NOTICE DATED 21/02/2006 TO REVISE THE ORDER DATED 18/03/2004, AS UNDER:- SHOW CAUSE NOTICE UNDER SECTION 263 OF THE I.T. ACT , 1961 RETURN OF INCOME HAS BEEN FILED ON 25.10.2001 SHOWI NG RETURNED INCOME AT RS.20,51,137/-. ASSESSMENT OF THE ASSESSEE COMPA NY WAS FINALISED U/S. 143(3) OF THE I.T.ACT ON 18.03.2004 ASSESSING THE I NCOME AT RS.27,69,590/-. 2. ON PERUSAL OF YOUR RECORDS, IT IS FOUND THAT AN AMOUNT OF US.9.64 LAKHS HAS BEEN CLAIMED BY YOU ON ACCOUNT OF 'BAD DEBTS'. FURTHER SCRUTINY REVEALED THAT THE BAD DEBTS RELATED TO TWO CLIENTS ON BEHALF OF WHOM YOU HAD PURCHASED SHARES AND EARNED BROKERAGE ONLY, FT IS NOTICED THAT THE PURCHASE/SALE OF SHARES ON BEHALF OF CLIENTS WERE N OT ROUTED THROUGH THE TRADING ACCOUNTS AS THE PURCHASE/SALES PRICE OF THE SAME WERE NOT REFLECTED IN THE PROFIT & LOSS ACCOUNT. ONLY THE AMOUNT OF BR OKERAGE WAS ACCOUNTED FOR IN THE PROFIT & LOSS ACCOUNT. 3. THE A.O. HAS ALLOWED BAD DEBT OF RS.9,64,676/- O N THE GROUND THAT THE CLIENTS, ON WHOSE BEHALF YOU HAD PURCHASED THE SHARES, HAD LOST THEIR LIVES IN THE EARTHQUAKE. THUS, THE A.O. HAS W RONGLY ALLOWED THE CLAIM OF BAD DEBTS OF RS.9,64,676/- WHILE ASSESSING THE INCOME OF THE ASSESSEE COMPANY. IN VIEW OF THE ABOVE FACTS, THE O RDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE ON THE ISSUE AND THEREFORE REQUIRED TO BE SET ASIDE U/S.26 3 OF THE I.T.ACT. THE OPPORTUNITY OF BEING HEARD IS HEREBY GIVEN TO THE A SSESSEE TO SHOW CAUSE AS TO WHY ACTION U/S.263 OF THE I.T.ACT SHOU LD NOT BE TAKEN TO MODIFY THE ASSESSMENT IN LIGHT OF THE ABOVE REASON S. THE HEARING OF THE ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 17 - CASE IS FIXED ON 07.03.2006 AT 11.30 A.M. THE ASSESSEE SHALL FILE ITS REPLY TO THIS SHOW CAUSE NOTICE ALONGWITH ALL DOCUM ENTARY EVIDENCE THAT IT RELIES UPON. 4. YOU ARE REQUESTED TO ATTEND EITHER IN PERSON OR THROUGH YOUR AUTHORISED REPRESENTATIVE ON 07.03.2006 AT 11.30 A.M. AT ROOM NO.301, 3RD FLOOR, ANNEXE BIDG.,AAYKAR BHAVAN, ASHR AM ROAD, AHMEDABAD OR SUBMIT YOUR REPLY IN WRITING ON OR BEF ORE 07.03.2006 TO SHOW CAUSE AS TO WHY ACTION U/S.263 OF THE I.T.ACT SHOULD NOT BE TAKEN TO MODIFY THE ASSESSMENT IN LIGHT OF THE ABOVE REAS ONS ALONGWITH RELEVANT DOCUMENTARY EVIDENCES/PROOF IN RESPECT OF YOUR CLAIM. 14. IN RESPONSE TO THIS NOTICE, THE ASSESSEE FURNIS HED A DETAILED REPLY WHICH IS ANNEXED AT PAGE NOS.9 TO 22 OF THE A SSESSEES PAPER- BOOK. IT IS, IN FACT, REPETITIVE OF THE REPLIES S UBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WHOSE GIST W E HAVE REPRODUCED ABOVE. COPIES OF THOSE LETTERS ARE ANNE XED IN THE ASSESSEES PAPER-BOOK. AS PER THESE LETTERS AND CO RRESPONDENCE MADE BY THE ASSESSEE WITH THE ASSESSING OFFICER AND CIT, THE ISSUE OF BAD DEBT AS WELL AS TRADING LOSS WAS CONSIDERED IN DETAIL. THEREAFTER, NO FURTHER ACTION SEEMS TO HAVE BEEN TA KEN BY THE CIT. THE ONLY INFERENCE IS THAT PROCEEDINGS U/S.263 OF T HE I.T. ACT, 1961 INITIATED BY WAY OF NOTICE DATED 21/02/2006 ARE DRO PPED. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE H AS CONFIRMED ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 18 - THIS DURING THE COURSE OF PROCEEDINGS BEFORE US AND THE LD.DR HAS NOT CONTROVERTED THE SAME. IN ANY CASE, THERE IS NO ORDER REVISING THE ORDER DATED 18/03/2004 U/S.263 OF THE I.T. ACT, 1961 ON THIS ISSUE IN RESPONSE TO PROCEEDINGS INITIATED BY WAY OF NOTICE DATED 21/02/2006. 15. NOW VIDE HIS NOTICE DATED 17/03/2009, THE PRE SENT LD.CIT INTENDED TO REVISE THE ORDER OF THE ASSESSING OFFIC ER PASSED U/S.153A R.W.S.143(3) DATED 28/12/2007, WHICH READS AS UNDER:- TO : 17-03-2009 THE PRINCIPAL OFFICER SHRI PRAVEEN RATILAL SHARE & STOCK BROKERS LTD. SARKAR-I,NR. GANDHIDHAM RLY.STATION ASHRAM RD. AHMEDABAD. SIR, SUB: SHOW CAUSE NOTICE FOR ACTION U/S. 263 OF THE I.T.ACT A.Y. 2001-02 - PA NO. AAACP 9124H - REG. THE ASSESSMENT FOR A.Y. 2001-02 WAS FINALIZED IN YO UR CASE ON 28-12-2007 BY THE DC1T, CENT.CIR-2(2), AHMEDABAD. THE ORDER PASSED BY THE A.O HAS BEEN PERUSED BY ME. IT IS NOTICED FROM THE ORDER THAT; : THE ASSESSMENT WAS FINALIZED ON 28-12-2007 AT RS.2 854270/- WHEREIN UNDISCLOSED INCOME OF RS.803130 HAS BEEN INCLUDED. FOR THE YEAR UNDER REFERENCE, IT IS OBSERVED THAT WHILE FILING THE RE/ URN OF INCOME YOU HAVE INCORPORATED BAD DEBTS OF RS.964676/-. IN P&L A/C W HICH WAS OVERLOOKED BY THE A. O. AND WRONGLY ALLOWED. SINCE YOU ARE ENG AGED IN SHARE BROKING BUSINESS AND SHOWN ONLY BROKERAGE INCOME ANY LOSS O N PURCHASE OF SHARE ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 19 - ON BEHALF OF THE CLIENT WHICH WERE NOT ROUTED THROU GH YOUR TRADING A/C, IS NOT ELIGIBLE AS HAD DEBTS FOR YOUR BUSINESS. ' THE ABOVE FACTS SHOW THAT THE ASSESSMENT ORDER PASS ED BY THE ASSESSING OFFICER IN RESPECT OF A.Y. 2001-02 IS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE. THUS, THE ASSESSMENT ORDER APPEARS TO HAVE BEEN PAS SED WITHOUT MAKING PROPER APPLICATION OF THE PROVISIONS IN THIS REGARD. THERE FORE. I PROPOSE TO SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 153A R.W.S. 143(3) OF THE AC T, 1961 AND TO ISSUE NECESSARY INSTRUCTIONS FOR MAKING THE ORDER DE NOVA. BEFORE DOING SO, YOU ARE GIVEN AN OPPORTUNITY OF BEING HEARD IN THIS MATTER. THEREFORE, PLEASE STATE AS TO WHY THE ORDER PASSED BY THE [ASS ESSING OFFICER IN YOUR CASE SHOULD NOT BE MODIFIED AND/OR SET ASIDE DIRECTING T HE ASSESSING OFFICER TO MAKE A FRESH ASSESSMENT. IN THIS CONNECTION, YOU ARE REQUESTED TO ATTEND MY OFFICE AT THE ABOVE STATED ADDRESS ON 25-03-2009 AT 11.00 A.M. IF YOU DO NOT W ISH TO ATTEND IN PERSON, PLEASE ADDRESS YOUR SUBMISSIONS IN WRITING SO AS TO REACH ME ON OR BEFORE THE ABOVE SAID DATE, PLEASE NOTE THAT FAILURE ON YOUR P ART WILL ENTAIL TO PASSING ORDER U/S. 263 OF THE ACT AS STATED ABOVE. 16. IN RESPONSE TO THIS, THE ASSESSEE FURNISHED A D ETAILED REPLY VIDE HIS LETTER DATED 19/03/2009, WHEREIN FOLLOWING POIN TS WERE RAISED:- (I) THE ASSESSING OFFICER HAS ACCEPTED THE DEBT BA LANCES IN THE ACCOUNTS OF VARIOUS PARTIES IN THEIR BOOKS. HE H AS ALSO ACCEPTED THAT AMOUNTS ARE NOT RECOVERABLE AND, ACCO RDINGLY, CLAIM OF BAD DEBTS HAVE ALSO NOT BEEN ACCEPTED TO T HE PROFIT & LOSS ACCOUNT. ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 20 - (II) AS A MEMBER OF STOCK EXCHANGE, IT IS THE PRIMA RY LIABILITY OF THE ASSESSEE TO MAKE PAYMENT FOR PURCHASE OF SHARES BY OUR CUSTOMERS. IF PAYMENTS ARE NOT EFFECTED BY THE COM PANY, THEN COMPANY WOULD BE TREATED AS A DEFAULTER AND WILL NO T ALLOW TO CARRY ON OUR BUSINESS IN THE STOCK EXCHANGE. THIS COMPANY IS LIABLE TO MAKE THE FULL AMOUNT OF PURCHASE PRICE T O THE STOCK EXCHANGE. THUS, THERE IS A PURCHASE OF THE SHARES BY THE ASSESSEE FROM STOCK EXCHANGE. WHEN SHARES ARE SOL D BY THE ASSESSEE ON BEHALF OF THE CLIENTS, THE ASSESSEE REC OVERS SALE PRICE OF SHARES WITHOUT BUSINESS IS DONE ON BEHALF OF CLIENTS, THEN ON PURCHASE OF THEIR BEHALF, THEIR ACCOUNT IS DEBITED AND SALES ARE MADE IN THEIR ACCOUNTS ARE CREDITED AND I N THE PROCESS BROKERAGE EARNED IS CREDITED IN THE PROFIT & LOSS A CCOUNT AND CLIENTS ARE ACCORDINGLY DEBITED. THUS, EACH AND EV ERY PART OF DEBIT IS TAKING INTO ACCOUNT WHILE COMPUTING INCOME OF THE COMPANY AS PER 36(2) OF THE I.T. ACT, 1961 IF ANY P ART OF THE DEBIT HAS NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE, THEN BAD DEBT WOULD NOT BE ADMISSI BLE. BUT IN THE PRESENT CASE, PART OF THE DEBT HAS BEEN TAKING INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE, THEN BAD D EBT WOULD NOT BE ADMISSIBLE. BUT IN THE PRESENT CASE, PART O F THE DEBT HAS BEEN TAKING INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE BROKERAGE IS PART OF THE DEBT AND HA S BEEN CONSIDERED AS INCOME. IT IS NOT THE REQUIREMENT OF LAW THAT ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 21 - EVERY ENTRY OF PURCHASE SHOULD BE ROUTED THROUGH TR ADING ACCOUNT. 17. IN OUR CONSIDERED VIEW THE AMOUNT IS ALSO DEDUC TIBLE AS TRADING LOSS U/S.28 OF THE I.T. ACT, 1961 IN VIEW O F THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MADERA UPENDRA SINAI VS. UOI (1975) 98 ITR 209(SC), IN CIT VS. NAINITAL BANK LTD. (1965)55 ITR 707 (SC), IN RAMCHANDAR SHIVNARAYAN VS . CIT (1978) 111 ITR 263 (SC), IN SULTEJ COTTON MILL LTD VS. CIT (1979) 116 ITR 01 (SC), IN TRAVANCORE TEA ESTATES CO.LTD. VS. CIT (1992)197 ITR 528(KER.), IN CIT VS. INDIAN BISELERS (1990) 181 ITR 69(MAD.), AND IN PATRAIK & CO.LTD. VS. CIT (1986)16 1 365 (SC). 18. WE NOTICE THAT THE ISSUE REGARDING BAD DEBT IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE FOLLOWING CASES:- SL.NO(S) DECISION IN THE CASE OF IN ITA NO(S) 1. CANON CAPITAL AND FINANCE LTD. VS. ACIT 1119/AHD/2005 AND 1447/AHD/2005 FOR AYS 2001-02 2. PARKER SECURITIES LTD. VS. ITO 752/AHD/2004 & 340/AHD/2000 FOR AY 2000-01 & ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 22 - 2002-03 3. KOTAK SECURITY LTD. VS. CIT 1955/MUM/2008 FOR AY 2005-07 (MUM.) 19. WE ALSO NOTICE THAT THE ASSESSEES APPEAL AGAIN ST THE ORDER U/S.153A OF THE I.T. ACT, 1961 HAS BEEN DISPOSE OF BY THE LD.CIT(A) AND, THEREFORE, ISSUE REGARDING COMPUTATION OF BUSINESS INCOME IS MERGED WITH THE ORDER OF THE LD.CIT. WE MAY REFER TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. AHMEDABAD CRUCIBLE CO. (1994) 206 ITR 574 (GUJ), IN SUPPORT OF OUR VIEW. 20. THE ISSUE REGARDING RS.9,64,677/- IS ALSO CONSI DERED BY THE LD. CIT IN HIS NOTICE DATED 21/02/2006 AND REPLY OF TH E ASSESSEE DATED 06/03/2006. ONCE THE ISSUE HAS BEEN CONSIDERED AN D ACCEPTED BOTH BY THE ASSESSING OFFICER AND LD.CIT, THEN QUESTION OF RAISING THE SAME ISSUE AGAIN IN RE-ASSESSMENT PROCEEDINGS U/S.1 53A OF THE I.T. ACT, 1961 IN OUR CONSIDERED VIEW WOULD NOT BE PROP ER. IT HAS ALSO BEEN SO HELD IN THE FOLLOWING CASES:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. CIT VS. GANAPATRAM RAM BISHNOI (2008) 296 ITR 292 (RAJ.) ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 23 - 2. CIT VS. MANGILAL DIDWANIA (2006) 286 ITR 126 (RAJ.) 3. CIT VS. HASTINGS PROPERTIES (2002) 253 ITR 124 (CAL.) 4. CIT VS. GABRIEL INDIA LTD. (1993) 203 ITR 108 (MUM.) FOLLOWING PRINCIPLES CAN BE CULLED OUT FROM THESE A UTHORITIES. (I) THE ASSESSING OFFICER HAS CARRIED OUT ENQUIRIES AND CONSIDERED THE ISSUE, THEN THE ORDER OF THE ASSESSI NG OFFICER WILL NOT BE ERRONEOUS FOR WANT OF ENQURIEIS . (II) MERELY BECAUSE THE LD.CIT DISAGREES WITH THE ASSESS ING OFFICER ON THE EXTENT AND DEPTH OF ENQUIRIES, THE O RDER OF THE ASSESSING OFFICER WILL NOT BE ERRONEOUS. (III) JURISDICTION U/S.263 OF THE I.T. ACT, 1961 CANNOT B E INVOKED FOR MAKING MORE ENQUIRIES OR TO GO INTO THE PROCESS OF ASSESSMENT AGAIN AND AGAIN MERELY ON THE GROUND THAT MORE ENQUIRIES COULD HAVE BEEN CONDUCTE D TO FIND OUT SOMETHING MORE. (IV) ONCE PROPER ENQUIRIES HAVE BEEN MADE BY THE ASSESSI NG OFFICER AND HE HAS APPLIED HIS MIND TO THE RELEVAN T MATERIAL WHICH WAS BROUGHT ON RECORD, THEN IT CANNO T BE ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 24 - HELD THAT HIS ORDER IS ERRONEOUS SO AS TO BE REVI SED BY LD.CIT. (V) THE ASSESSING OFFICER HAS DRAWN ONE OF THE POSSIBLE INFERENCES ON THE BASIS OF ENQUIRIES DONE BY HIM, T HEN THE VIEW THAT, IF SOME MORE ENQUIRIES COULD BE CARR IED OUT, THE RESULT WOULD BE DIFFERENT, WOULD ONLY BE A CHANGE OF OPINION. IN OTHER WORDS, ONCE ONE OF THE POSSIBLE INFERENCES HAVE BEEN DRAWN BY THE ASSESSIN G OFFICER, THEN TO HOLD THAT THERE COULD BE A DIFFERE NT INFERENCE WOULD ONLY BE A CHANGE OF OPINION WHICH I S NOT PERMISSIBLE U/S.263 OF THE I.T. ACT, 1961. 21. NOTWITHSTANDING, THAT THE ASSESSING OFFICER HAS ALR EADY CONSIDERED THE ISSUE OF RS.9,64,677/- NOT ONLY AS B AD DEBT BUT ALSO AS A TRADING LOSS AS IS APPARENT FROM THE SHOW-CAUS E NOTICE ISSUED AND REPLIES SUBMITTED BY THE ASSESSEE AND, ACCORDIN GLY HAD NOT PROPOSED ANY DISALLOWANCE, WE ARE OF THE CONSIDER ED VIEW THAT THERE IS NO SUSTAINABLE ADDITION EVEN ON MERIT. ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 25 - 22. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN THREE CASES REFERRED TO BY THE LD.AR, W HEREIN IT HAS BEEN HELD THAT IF PART OF THE DEBT IS TAKEN INTO ACCOUNT IN T HE PROFIT & LOSS ACCOUNT, THEN ENTIRE AMOUNT COULD BE COVERED U/S.36(2) OF T HE I.T. ACT, 1961. IT IS BECAUSE OF LANGUAGE OF SECTION 36(2) SUGGESTS THAT THE ASSESSEE IS NOT REQUIRED TO SHOW THAT ENTIRE SUM OF BAD DEBT SHOULD PASS THROUGH PROFIT & LOSS ACCOUNT IN EARLIER YEAR. IT IS SUFFICIENT TH AT A PART OF IT HAS PASSED THROUGH THE PROFIT & LOSS ACCOUNT. THERE HAS BEE N A VALID TRANSACTION BETWEEN THE ASSESSEE AND THE BADIANI(S). IT IS PRO VED ON RECORD THAT BROKERAGE HAS BEEN PAID TO THE ASSESSEE WHICH IS CR EDITED TO THE PROFIT & LOSS ACCOUNT AND DEBITED TO THE ACCOUNT OF BADIANI( S). BADIANI(S) DIED IN THE EARTH-QUAKE. DEATH CERTIFICATES HAVE BEEN P LACED ON THE RECORD OF ASSESSING OFFICER. THERE IS NO CHANCE OF RECOVERY FROM THEM. ONCE VALIDITY OF TRANSACTIONS WITH THE BADIANIS ARE NOT UNDER CHALLENGE AND SO THE INCOME OF BROKERAGE CREDITED IN THE PROFIT & LO SS ACCOUNT, THEN IT CANNOT BE SAID THAT PROVISIONS OF SECTION 36(2) HAV E NOT BEEN COMPLIED WITH. EVEN OTHERWISE, IT IS PROVED BY THE ASSESSE E THAT IT IS TRADING LOSS. THE ISSUE HAS BEEN EXAMINED BY THE ASSESSING OFFICE R ORIGINALLY AND BY LD.CIT ORIGINALLY IN THE PROCEEDINGS U/S.263 OF THE I.T. ACT, 1961. THEY WERE APPARENTLY SATISFIED AS NO FURTHER ACTION HAS BEEN TAKEN BY THEM. A ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 26 - LOSS U/S.28 OF THE I.T. ACT, 1961 IS ALLOWABLE IF I T IS INCURRED DURING THE COURSE OF BUSINESS. UNDOUBTEDLY, THE ASSESSEES BU SINESS IS SELLING AND PURCHASING SHARES ON BEHALF OF THE CLIENTS. THE A SSESSEE HAS PURCHASED THE SHARES FOR THE CLIENTS FROM STOCK EXCHANGE TO W HICH IT HAS NECESSARILY TO MAKE PAYMENTS FOR AVOIDING CANCELLATION OF HIS T ICKET OR FOR AVOIDING LEVY OF PENALTY. IT IS NOT A CASE WHERE THE CLIEN TS HAVE TO MAKE THE PAYMENTS DIRECTLY TO STOCK EXCHANGE AND ASSESSEE HA S NO LIABILITY TOWARDS STOCK EXCHANGE THROUGH WHICH THE SHARE TRANSACTIONS HAVE TO NECESSARILY PASS. THE ASSESSEE HAS TO SETTLE THE ACCOUNTS ON F IXED DATES. IT IS A COMMITMENT OF THE ASSESSEE TO CONTINUE TO HOLD HIS TICKET WITH STOCK EXCHANGE TO MAKE THE PAYMENT ON BEHALF OF THE CLIEN TS AND RECOVER THE DUES FROM THE CLIENTS WHICH BECOMES THE LIABILITY O F THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE-COMPANY HAD SUFFERED THE LOSS ON ACCOUNT OF BUSINESS CARRIED ON BY IT WITH THE CLIENTS. THE T RANSACTION WITH THE BADIANI(S) FROM WHOM THE ASSESSEE HAS FAILED TO REC OVER THE MONEY ON ACCOUNT OF THEIR DEATH IN THE EARTH-QUAKE OF 26/01/ 2001, WAS FOUND TO BE GENUINE. THEY WERE NOT FOUND TO BE CLOSE RELATIVE S OR FRIENDS OF THE ASSESSEE-COMPANY OR ITS DIRECTORS OR THEY DID NOT H AVE ANY COMMON INTEREST. THERE IS NO MATERIAL TO HOLD THAT SOME DUBIOUS MODES OPERANDI HAS BEEN ADOPTED TO INCUR LOSS AND, THUS, TO AVOID TAX. THE ASSESSEE HAS ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 27 - PLACED ON RECORD MATERIAL TO INDICATE THAT SHARE TR ANSACTIONS ENTERED INTO BY THE ASSESSEE-COMPANY IS SUPPORTED BY CONTRACT-NO TES AND BILLS, THE PAYMENTS USED TO BE RECEIVED THROUGH 'A/C PAYEE CHE QUE' AND DRAFTS. THERE ARE DEFINITE CIRCUMSTANCES THAT DUES FROM BAD IANI(S) ARE NOT RECOVERABLE, THEN LOSSES ARE CLEARLY INCURRED DURIN G THE COURSE OF BUSINESS AND, THEREFORE, THE SAME IS ALLOWABLE U/S .28 OF THE I.T. ACT, 1961. WE ARE FORTIFIED IN OUR CONCLUSION BY THE DE CISION OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. JANKI TE XTILES AND INDUSTRIES AND (2003) 264 ITR 579 (GAUHATI), OF CIT VS. PRAVE EN ELECTRONICS LTD. (200) 312 ITR 170 (DELHI) AND OF CWT VS. B.M.K.CHAN DRAKANTH (2000) 241 ITR 491 (MAD.). 23. IN OUR CONSIDERED VIEW, LOSS SUFFERED BY THE A SSESSEE IS INCIDENTAL TO THE BUSINESS OF SHARE BROKERAGE AND TRANSACTIONS HAVING NOT BEEN FOUND AS NON-GENUINE, THE SAME IS ALLOWABLE U/S.28 OF THE I.T. ACT, 1961. 24. THE NEXT ISSUE IS WHETHER PRESENT CIT IS COMPET ENT AND HAS JUSTIFICATION TO REVISE THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF AN ISSUE WHICH IS CLOSED AND COMPLETED AS PER THE ORIG INAL ASSESSMENT ORDER PASSED ON 18/03/2004. THE UNDISPUTED FACTS IN THIS REGARD ARE THAT THIS ITA NO.1527/AHD /2009 M/S.PRAVIN RATILAL SHARE & STOCK BROKERS LTD. VS. D Y.CIT ASST.YEAR - 2001-02 - 28 - ASSESSMENT ORDER WAS CHALLENGED BEFORE THE LD.CIT(A PPEALS) IN RESPECT OF COMPUTATION OF BUSINESS INCOME AND, THUS, WAS N OT PENDING BEFORE THE ASSESSING OFFICER. IN THE LIGHT OF THESE FACTS, WH EN WE EXAMINE SECTION 153A OF THE I.T. ACT, 1961, WE FIND THAT THE PROVI SIONS OF THIS SECTION PERMIT THE ASSESSING OFFICER TO INITIATE RE-ASSESS MENT PROCEEDINGS IN RESPECT OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDI NG THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SE ARCH IS CONDUCTED OR REQUISITION IS MADE AND, FURTHER, THAT ASSESSMENTS IN RESPECT OF ASSESSMENT YEARS OUT OF SIX ASSESSMENT YEARS, WHICH ARE PENDIN G BEFORE THE ASSESSING OFFICER ON THE DATE OF SEARCH OR REQUISIT ION SHALL ABATE. 25. THE COMMONLY UNDERSTOOD MEANING OF WORD ABATE IS TO ABANDON AN ACTION OR TO DIMINISH OR TO TAKE AWAY OR TO PUT AN END, TO CURTAIL, OR TO COME TO NAUGHT. IN THE NEW INTERNATIONAL WEBSTERS COMPREHENSIVE DICTIONARY OF THE ENGLISH LANGUAGE THE MEANING OF W ORD ABATE IS GIVEN AS UNDER: ABATE V . ABATED, ABATING V.T. 1 TO MAKE LESS; REDUCE IN SIZE, NUMBER, DEGREE, AMOUNT, IMPORTANCE, SPEED, OR FORCE. 2 TO DEDUC T, AS PART OF A PAYMENT. 3 LAW TO DO AWAY WITH; ANNUL. V.I. 4 TO BECOME LESS, AS IN STRENGTH OR DEGREE. 5 LAW TO FAIL; BECOME VOID. [< OF ABATRE BEAT DOWN < A- TO (